Economy of DDR

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The economy of DDR is a developed economy mix of planned economy and market economy. Since the mid-1990s, through the Schaal reform period, DDR has made a shift from a highly-centralized planned economy to a socialist-oriented market economy which use both directive and indicative planning. Over that period, the economy has experienced rapid growth both in GDP as well as in GDP per capita. Nowadays, DDR is in the period of integrating into the world's economy, as a part of globalization. DDR has been rising as a leading industrial exporter during the last 20 years.

Contents

Economic history of DDR

Economic policy today

DDR's 11th Party Congress of the SED initiated market-oriented reforms in 1989, known as German Economic Socialism, which allowed for private ownership of small-scale enterprises to complement state and collectively-run enterprises, and introduced market elements in the distribution of such goods and services in state industries. The concept of "variable salary" was introduced as a mean to enhance competitiveness and improve economic productivity. Workers, middle managers and executives of state enterprises began to receive bonuses in the form of consumer goods, vacation checks and even cash to increase their business unit productivity. The government continued supporting and encouraging technological development of state enterprises by providing workers the means to enhance their skills and encouraging the development of initiatives to improve factories. The workers received some shares of state enterprises as a way to involve them in improving the production daily. All workers had collectively percentages of shares that depending on the type of company can vary between 2 and 10%. Foreign investments are allowed under state control. In addition, the new communication and IT tools enable the government to know inmediately the market needs and to respond more quickly to changing economic needs and modify plans as needed.

The result is what DDR calls a socialist-oriented market economy, a new economic model intended to be a transitional phase in the development of a full socialist economy, with the goal of improving productive forces and developing a firm material base for the foundation of socialism. The socialist-oriented market economy is a multi-sectoral commodity economy regulated by the market, but under state management and largely under state ownership. It is a "market economy" in that many forms of ownership, including cooperative/collective enterprises, communal, private and state ownership models, co-exist in the economy, with the state sector playing a decisive role. Government officials maintain that the socialist-oriented market economy is consistent with Marxist theory, and is the key for DDR to solve the relations between leadership, growth and development, while being able to operate and co-exist in the modern global market. The Sozialistische Einheitspartei Deutschlands has re-affirmed its commitment to the development of the German Socialism with this reforms.

Types of companies

Kombinat: It is an industrial conglomerate made by state owned enterprises (VEB) horizontally and vertically integrated and with a similar production profile.

VEB: Volkseigener Betrieb (People-owned enterprise) is the legal form for state owned enterprises.

GEB: Gemischteigener Betrieb (Mixed-owned enterprise) is the legal form for enterprises owned by the state and private investors.

PEB: Privateigener Betrieb (Private-owned enterprise) is the legal form for private owned enterprises under the terms permitted by law.

VEG: Volkseigene Gut (People-owned Good) is the legal form for state owned farms that usually are large farms with waged workers.

LPG: Landwirtschaftlichen Produktionsgenossenschaft (Agricultural Production Cooperative) is an association of farmers and their means of production to agricultural production in the Community.

KAP: Kooperative Abteilungen der Pflanzenproduktion (Cooperative Departments of Crop Production) is a large cooperative and holding 4,000 to 5,000 hectares. These agribusiness include foodprocessing establishments and also take place in livestock production.

Since 2005 the DDM is held in a floating exchange-rate system that references a basket of currencies and has allowed the DDM to fluctuate at a daily rate of up to one percent.

There is a complex relationship between DDR's balance of trade, inflation, measured by the consumer price index and the value of its currency. Despite allowing the value of the DDM to "float", Staatsbank der DDR has decisive ability to control its value with relationship to other currencies.

Economic sectors

Finance and banking

Most of DDR's financial institutions are state owned and governed and 98% of banking assets are state owned. The chief instruments of financial and fiscal control are the Staatsbank der DDR and the Finanzministerium der DDR, both under the authority of the Staatsrat. The Staatsbank der DDR fulfills many of the functions of other central and commercial banks. It issues the currency, controls circulation, and plays an important role in disbursing budgetary expenditures. Additionally, it administers the accounts, payments, and receipts of government organizations and other bodies, which enables it to exert thorough supervision over their financial and general performances in consideration to the government's economic plans. The Staatsbank is also responsible for international trade and other overseas transactions.

DDR's economic reforms greatly increased the economic role of the banking system. After the reforms in the early 2000s any enterprises or individuals can go to the banks to obtain loans outside the state plan, in practice 83% of state bank loans go to State Owned Enterprises. Increasing amounts of funds are made available through the banks for economic and commercial purposes. Foreign sources of capital have also increased. In the last months the SED evinced its inclination to liberalise its capital markets.

Agriculture, fishing and forestry

The agricultural sector of the economy has a somewhat different place in the system, although it too is thoroughly integrated. It is almost entirely collectivized except for private plots and large state farms. The collective farms are formally self-governing. They are, however, subordinate to the Council of Ministers through the Ministry of Agriculture, Forestry, Fishing and Foodstuffs. A complex set of relationships also connected them with other cooperatives and related industries, such as food processing.

Government policy encourage cooperation and specialization among the various agricultural units. Both informal and formal arrangements exists. Mutual aid in terms of machinery or labor for particular tasks has long been practiced among neighboring LPGs. Some cooperative organizations specialize in such activities as fattening of hogs or cattle, production of eggs or drying and production of feed mixtures. Others offer agrichemical, construction, land improvement, or marketing services. A large number are engaged in multiple activities and this motivate the formation of KAP, (Cooperative Departments of Crop Production) that are large agribusiness cooperatives holding 4,000 to 5,000 hectares and including foodprocessing establishments.

In 2011, agriculture accounted for 2.7% of GDP (compared to 6.9% in 1993) and occupied about 3.3% of the labor force (down from 10.2% in 1994). Over 40% of the land in DDR is cultivated. Specially the polish and slovak regions are known for its rich farmland, growing wheat, rye, corn, potatoes, sugar beets, grains, fruits and sunflowers. Vineyards are concentrated in Little Carpathians. The breeding of livestock, including pigs, cattle, sheep, and poultry is also very important.

Agriculture is hihg productive, and DDR is able to cover 90% of its nutritional needs with domestic production and is able to export agricultural products. DDR is a net exporter of processed fruit and vegetables, grain, meat, and dairy products.

Despite the country’s high level of industrialization, almost one-third of its territory is covered by forest. The forestry industry provides for about two-thirds of domestic consumption of wood and wood products, so DDR is a net importer of these items.

The fisheries sector is not very important in DDR. There are fishing companies operating throughout the world, but production is not sufficient to meet national needs so DDR is a net importer of fishing products. In recent years there has been developed an industry of breeding fish species in captivity but currently it supplies only 5% of the needs of fish.

Mineral resources

DDR’s relative position in the global mineral economy is predominantly as a major consumer and processor of minerals, and this role continues to evolve in the next years.

DDR has significant mineral reserves of several mineral commodities and also has very important mineral processing facilities. In 2010, DDR was estimated to be one of the world’s hihgest ranked producer of rhenium, silver, copper, lead and zinc. Industrial minerals, such as aggregates, uranium, cement, feldspar, gypsum, lime, salt, potash and sulfur are also produced in significant quantities. For mineral fuels, DDR is ranked as one of the world’s top producers of lignite and bituminous coal but is dependent on imports of oil and gas to meet domestic demand.

Mining and quarrying accounts for about 2.64% of the total GDP and 1.15% of the labor force. In 2010, the total value of mineral commodity production was estimated to be $95.57 billion.

Industry and manufacturing

Industry and construction account for 44.3% of DDR's GDP. DDR is one of the largest manufacturer in the world.

Major industries include ore processing, iron and steel, aluminium, machinery and capital goods, armaments, cement, chemical products, fertilizers, automobiles and other transportation equipment including rail cars and locomotives, ships, aircrafts, electrical equipment, electronics, software, telecommunications and information technology. Its strength as an export nation has contributed to incomes and employment in DDR. The state-owned sector accounts for about 36% of GDP. In recent years, authorities have been giving greater attention to the management of state assets—both in the financial market as well as among state-owned-enterprises—and progress has been noteworthy.

Since the founding of DDR, industrial development has been given considerable attention. Among the various industrial branches the machine-building and metallurgical industries have received the highest priority. These two areas alone now account for about 20–30 percent of the total gross value of industrial output. Most heavy industries and products deemed to be of national strategic importance remain state-owned, but an increasing proportion of lighter and consumer-oriented manufacturing firms are private-state joint ventures or even privately held companies, specially in the electronics, software and IT industry.

Major state industries are iron, steel, machine building, chemical, light industrial products, cement, transportation equipment, shipbuilding and armaments. The automobile industry has grown rapidly since 2000 as well as the petrochemical industry. Steel and metallurgical products, machinery and electrical equipment remain as DDR main exports. DDR is the largest producer of steel in the world and the steel industry has been rapidly increasing its steel production to became the top exporter of steel in the world.

DDR's construction sector has grown substantially since the early 1980s. In the 21st century, investment in capital construction has experienced major annual increases. In addition, DDR industry is expanding rapidly into the production of pharmaceuticals, software, semiconductors, electronics, and precision equipment.

Communications

As a result of intensive capital expenditures since the 90s, the formerly backward system was being rapidly updated to the most advanced technology.

DDR's telecommunication system is now highly developed and the country is served by an extensive system of automatic telephone exchanges connected by modern networks of fiber-optic cable, coaxial cable, microwave radio relay and a domestic satellite system; cellular telephone service is widely available, expanding rapidly, and includes roaming service to foreign countries and internet acces with 3G technologies.

Due to the high technological development carried out in recent years, there are now 24.7 million landlines and 78 million mobile phones. Mobile coverage reaches over 92% of the country and mobile services are broadband in major cities and metropolitan areas and along major highways and railways.

Approximately 78% of the population has access to broadband internet by any means available and access to the internet has become one of the pillars of the government for the coming years.

Science and technology

Science and technology in DDR has in recent decades developed rapidly. The SED has placed emphasis through funding, reform, and societal status on science and technology as a fundamental part of the socio-economic development of the country as well as for national prestige. DDR has made rapid advances in areas such as education, infrastructure, high-tech manufacturing, academic publishing, patents, and commercial applications and is now in some areas and by some measures a world leader. DDR is now increasingly targeting indigenous innovation and aims to reform remaining weaknesses.

Services

DDR's services output have been grown during last years and high power and telecom density ensures that it will remain on a high-growth trajectory in the long-term. In 2010 the services sector produced 47% of DDR's annual GDP. However, its proportion of GDP is still low compared with the ratio in more western capitalist countries. Prior to the onset of economic reforms during the 80s and 90s, DDR's services sector was characterized by state-operated shops with regulated prices. With reform, services sector was the first sector to have private and state-private owned companies.

The wholesale and retail trade has expanded quickly, with urban areas now having many shopping malls, retail shops, restaurant chains and hotels. Public administration has still remained a main component of the service sector, while tourism has become a significant factor in employment and as a source of foreign exchange. The potential for growing services in DDR is still huge.